Servicing

Employment in the loan brokerage sector fell to an eight year low in January to 73,600 positions, yet another sign that this third-party lending channel is facing a grim future. According to new figures released Friday morning by the Bureau of Labor Statistics, total employment in the mortgage industry (which includes loan brokers) fell to 271,800 full-time positions, also a multi-year low. Year over year broker employment fell by 20% while total residential finance employment declined by 18%. In recent months more lenders have eliminated their wholesale production channels, and several mortgage insurers have placed restrictions on broker-sourced loans. Meanwhile, the national unemployment rate jumped to 8.1% in January, the highest since 1983. More Americans collecting unemployment means these families will have a harder time paying their monthly mortgages. Meanwhile, one investment banker told National Mortgage News that some large banks that are still involved in correspondent lending are considering increasing their net worth requirements on third-party lenders, which could cause more job displacement in the industry.

The House of Representatives on Thursday night approved legislation 234 to 191 that would let bankruptcy judges modify or "cramdown" mortgages, but the bill's fate in the Senate remains unclear. Though the House leadership had enough of a majority to pass the bill over opposition from Republicans and several conservative Democrats, Senate leaders do not have as much leeway, according to a report in American Banker. Some Senate Democrats, including Sen. Evan Bayh of Indiana, continue to push for ways to narrow the bill, encouraged by the banking industry, which believes the legislation will drive up the cost of credit. The bill passed on Thursday included language designed to encourage borrowers to attempt to seek a loan modification from their lender before bankruptcy. For example, if a servicer offered a borrower a loan modification, the homeowner would have to consider it before heading to bankruptcy court. The judge would retain the ultimate say in determining if the borrower acted in good faith and could still reduce the terms of the mortgage. The borrower also would have to wait 30 days between trying to receive assistance from the servicer and going to bankruptcy.

Fitch Ratings, New York, has downgraded the U.S. residential primary servicer ratings of PHH Mortgage Corp., Mt. Laurel, N.J. The downgrade reflects a recent downgrade of the issuer default rating of parent company PHH Corp. Fitch is worried about PHH Corp.'s financial flexibility in the increasingly challenged residential mortgage market and the potential impact on PHH Mortgage's servicing operations. "Fitch believes that PHH Mortgage continues to operate an effective servicing and subservicing platform. However, Fitch will continue to monitor PHH's ability to maintain its portfolio performance and loan servicing capabilities in a rising delinquency environment," the rating agency said. Fitch cut PHH's ratings for prime, alt-A and subservicing from "RPS1-" to "RPS2+" and for home equity lines of credit from "RPS 1-" to "RPS2"

A report from the Federal Reserve Bank of St. Louis suggests that the number of subprime mortgage loans terminated between 2001 and 2006 outweighed the number of estimated first-time homebuyers who sought subprime mortgages. The analysis appears in the March/April issue of Review, the St. Louis Fed's bi-monthly journal of economic and business issues, and was conducted by Yuliya S. Demyanyk, a senior research economist with the Federal Reserve Bank of Cleveland and formerly of the St. Louis Fed. She focused on whether borrowers intended to keep their subprime mortgages long enough to substantiate an increase in homeownership or planned a quick exit strategy at origination, using subprime loans as bridge financing to speculate on house prices — in other words, quickly sell the house for profit after its value increased. Ms. Demyanyk found almost half the loans originated between 2001 and 2006 exited the market either through prepayment or default within the first two years of origination and about 80% did so within three years of origination. "Subprime mortgages were very risky all along," she said. "The extent of their risk, however, was hidden by the rapid appreciation in house prices, allowing termination of the mortgage by refinancing or prepayment. When prepayment became costly — with zero or negative equity in the house increasing the closing costs of refinancing — defaults took their place." The number of defaults in the limited sample of subprime purchase-money mortgages within two years of origination is almost equal to the number of first-time homebuyers who took a subprime mortgage. "If the data for the rest of the market were available," said Ms. Demyanyk, "the number of defaults would no doubt be even greater."

Freddie Mac is suspending foreclosure sales on mortgages eligible for the Home Affordable Modification Program as part of the Obama Administration's Making Home Affordable plan. Previously, the company had suspended foreclosure sales on occupied properties through March 6, 2009. Freddie Mac will instruct its servicers not to make a foreclosure sale on a property eligible for the Home Affordable Modification program unless they completed their effort to contact the borrower and either the borrower did not respond or lacked the capacity or willingness to participate in the program or any other Freddie Mac workout program. Servicers are given broad authority to postpone foreclosure sales on a case-by-case basis when the servicers are working with borrowers to avoid foreclosure using any of Freddie Mac's workout options.

Freddie Mac has launched its new REO Rental Initiative giving qualified tenants and former owners the option to lease their recently foreclosed properties on a month-to-month basis. The initiative will be managed by HomeSteps, Freddie Mac's national real estate unit, and implemented through several national property management firms. Freddie Mac will continue to suspend all eviction actions until April 1, 2009. Starting today the property management firms will begin the process of contacting occupants to determine their interest in staying in the home and their eligibility for a month-to-month lease. To qualify for a lease, the tenant or former owner must occupy the property and show they have adequate income to pay the monthly rental amount established by the property management company based on market rents for the area where the home is located. Occupants must agree to allow HomeSteps to show the home to potential buyers as it will be marketed for sale during the lease period. If an occupant does not wish to lease the property, Freddie Mac will continue its current practice of offering relocation assistance. In addition, Freddie Mac will also explore available workout options with owner-occupants after Freddie Mac gains title to the property through foreclosure. "The Rental Initiative helps stabilize property values and local communities by keeping homes occupied and less vulnerable to vandalism," said Ingrid Beckles, senior vice president, default asset management at Freddie Mac.

A General Motors bankruptcy would have a "materially adverse impact" on GMAC Financial Services, according to the latter company's 10-K filing. That filing, made on Feb. 27, was done before GM made its own 10-K filing on March 5. GM's filing included a statement of the existence of substantial doubt about the automobile maker's ability to continue as a going concern. GM owns 49% of GMACFS, with the rest held by an affiliate of Cerberus Capital Management. "We have substantial credit exposure to GM, and a GM bankruptcy could impact certain of our funding facilities." As of the end of last year, it had $2.5 billion in secured exposure and $1.9 billion in unsecured exposure to GM. GMACFS is the parent of Residential Capital LLC. In the 10-K, GMACFS said that ResCap remains heavily dependent on it for funding and capital support but there is no assurance that the parent would provide such support.

The national mortgage delinquency rate — which includes both prime and subprime mortgages — climbed to a record 7.88% in the fourth quarter with subprime late payments reaching a staggering 21.88%, according to new figures released Thursday morning by the Mortgage Bankers Association. Figures compiled by National Mortgage News show that Americans owe $9.6 trillion on their loans which means $756 billion in residential mortgage debt is delinquent. Also, $196 billion in subprime debt is 30 days or more late. Prime foreclosures started in the quarter increased to 1.88% of outstanding loans, double last year's rate. The only positive in the numbers: the rate at which homes are going into foreclosure was flat but as MBA chief economist Jay Brinkmann noted: "This is mainly attributable to various state and local moratoria on foreclosure sales" and similar actions taken by Fannie Mae and Freddie Mac. He added at a conference call "It is really driving a build up in the 90-day or more [past due] bucket. More loans are being held in that bucket as opposed to what is being sent into foreclosure." But even though the rate of foreclosures may be flat the foreclosure inventory numbers are huge: 6.30% of all loans, and 23.11% of subprime mortgages are seriously delinquent or in foreclosure. The South and Midwest have the highest delinquency rates: 9.4% and 9.58%, respectively. Mr. Brinkmann said he expects the Obama foreclosure prevention efforts "will be beneficial" to the rate of foreclosures and delinquencies in 2009, yet difficult to quantify. "When you break out what loans stay in foreclosure, what percentage of those are vacant properties, for example we hear from Freddie Mac about 40% of their loans are in foreclosure...so clearly the plan can help."

The national mortgage delinquency rate — which includes both prime and subprime mortgages — climbed to a record 7.88% in the fourth quarter with subprime late payments reaching a staggering 21.88%, according to new figures released Thursday morning by the Mortgage Bankers Association.Figures compiled by National Mortgage News show that Americans owe $9.6 trillion on their loans which means $756 billion in residential mortgage debt is delinquent. Also, $196 billion in subprime debt is 30-days or more late. Prime foreclosures started in the quarter increased to 1.88% of outstanding loans, double last year's rate. The only positive in the numbers: the rate at which homes are going into foreclosure was flat but as MBA chief economist Jay Brinkmann noted: "This is mainly attributable to various state and local moratoria on foreclosure sales" and similar actions taken by Fannie Mae and Freddie Mac. But even though the rate of foreclosures may be flat the foreclosure inventory numbers are huge: 6.30% of all loans, and 23.11% of subprime mortgages are seriously delinquent or in foreclosure. The South and Midwest have the highest delinquency rates: 9.40% and 9.58%, respectively.

Suncoast Schools Credit Union of Tampa — one of the largest CU players in home mortgages — is talking to a crosstown CU about a possible merger, according to The Credit Union Journal. The other institution, GTE Federal Credit Union, ranks 95th in CU mortgage holdings whereas Suncoast ranks seventh, according to The Mortgage Industry Directory. If the two combine forces it would be the biggest merger ever of two credit unions. Both institutions, however, have been saddled with large losses because of the mortgage meltdown. Suncoast is Florida's largest credit union. A merger would create a giant with almost $8 billion in assets serving roughly 675,000 members. Last year Suncoast lost $76.7 million and GTE lost $27.5 million, according to figures compiled by the National Credit Union Administration.